Voluntary Provident Fund (VPF) is also known as a Voluntary Retirement Fund. It is the voluntary fund contribution from the employee towards his/her PF account. The contribution must be over and above 12%. However, the maximum contribution can be up to 100% of the basic salary plus dearness allowance. Interest is earned at the same rate as the EPF.
Unlike, Employees’ Provident Fund Scheme, employers are under no obligation to contribute to their employees’ voluntary provident fund portfolio. Likewise, an employee also has no obligation to contribute to this plan. It is important to note that once you have chosen to contribute to a voluntary provident fund, the same cannot be terminated or discontinued before the completion of base tenure of 5 years. The interest rate of such plans is decided by the Government of India at the starting of each financial year.
Benefits of Voluntary Provident Fund
Eligibility for Voluntary Provident Fund
Since the Voluntary Provident Fund scheme is an extension of the Employees’ Provident Fund scheme, only salaried employees who receive payments monthly in their salary accounts are eligible to invest in this scheme.
The below-mentioned documents must be submitted for employees to open a VPF account:
Tax benefits available under a Voluntary Provident Fund
When it comes to investment options in India, the Voluntary provident fund is considered as one of the best. The employees are eligible for tax benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. The interest received from these contributions is also exempt from tax. However, in case the rate of interest is more than 9.50% p.a., the amount will be taxable.
The interest rate of a VPF
The rate of interest is set by the Indian Government and is revised every year. The rate of interest for FY 2019-2020 is 8.50% per annum. Previously, the rate of interest was 8.65%. Investments towards a VPF account is viable because of its high rate of interest and tax benefits.
Rules and regulations of a VPF
The rules and regulations of the VPF account are mentioned below:
The process to withdraw money from a VPF account
Withdrawing money from a VPF account could come in handy in case of financial requirements due to medical emergencies. The employees are required to fill up Form-31 and give a request letter in writing for VPF withdrawal. Form-31 can be collected by the employees from their employer’s Human Resource (HR) team or on the government’s portal. All required documents, including the employees’ detail such as PF number, postal address, and bank details must be submitted. A cancelled cheque must also be submitted. All the documents that are submitted must be self-attested.